Fuel Ventures Fund

About

Introduction

Fuel Ventures EIS Fund 1 (the “Fuel Fund”) is a new EIS fund specialising in super-early seed, seed, and series A stage-investments in the European e-commerce sector. The Fund is seeking to raise a total of £30 million, with a portion of this being raised through Seedrs.

The Fund will invest in a variety of high-growth, early-stage technology businesses from incubation and inception (super-early seed) to seed and post-launch (late seed), as well as series A businesses showing signs of exceptional growth.

With company research and mentoring services being provided by the award-winning entrepreneur Mark Pearson and his team, the Fund represents an exceptional opportunity to invest with one of the Europe’s leading internet entrepreneurs who has already proven his ability to deliver extraordinary returns on investments over the last decade.

Mark is an award winning digital entrepreneur, having won Entrepreneur of the Year at the Growing Business Awards and the Ernst and Young UK Entrepreneur of the Year 2011 - Emerging entrepreneur award and is a specialist in e- commerce. In 2006 Mark began his career in e-commerce starting a business, Markco Media, which sold in 2014 for £55m, which included the business myvouchercodes.co.uk.

After his success with Markco Media, Mark has continued to invest in e-commerce businesses. To date, he has invested in approximately 10 businesses significantly outperforming venture capital in Europe, which has delivered returns of 2.1% a year since 1990 according to Thomson Reuters.

In October 2010 Mark became an early investor in Ve interactive, an e-commerce SAAS provider now valued at £1.25bn, generating an approximate 75X return on his investment so far.

A summary of Mark’s notable investments (in his personal name) and associated returns are presented below. Please note that the figures below refer to past investments and past performance is not a reliable indicator of future results.

Investment Opportunity

The core focus of the Fund is investing in companies that operate within the e-commerce sector. This is broadly defined as including any consumer facing business where there is a clear transaction/purchase that is conducted via the internet and companies that sell to and support the operations of e-commerce companies.

In line with this focus, the Fund will seek to:

• Create: to build companies that create products and services people want and need.

• Invest: to invest in some of the Europe’s most exciting early stage game changing companies in the e-commerce sector.

• Grow: to help grow and rapidly scale companies with great potential and take them to the next level of their development.

Investment Approach

Fuel Ventures’ approach is based upon knowledge gained from first-hand experience as a successful entrepreneur building up an e-commerce businesses. The team at Fuel Ventures understands what works and does not work, having built from scratch a number of businesses, as well as actively investing in, and mentoring a number of other companies. This will drive the research carried out by Fuel Ventures for Sapphire Capital Partners LLP (the “Investment Manager”).

The Fuel Ventures team has an ability to identify and rapidly overcome problems, either based upon the team’s previous experience, or using its access to a network of experts developed over eight years. Their network and alumni contacts enable Fuel Ventures to make strategic links and partnerships with other businesses to drive the next stage of an investments growth.

Mark Pearson’s philosophy recognises that for each investment he has made to date, there has not been a "key moment" or input, but rather a rigorous, and continuous focus on incremental improvements that in totality have created significant value. He, and the team at Fuel Ventures Limited, will apply this focus on the research carried out for the Investment Manager – the Investment Manager will utilise this to determine the investments that the Fund will make.

Based upon Mark's experience, Fuel Ventures recognises the real value that can be created by bringing together like minded entrepreneurs under one roof. The team believe this enables key behaviours for success such as innovative thinking, collaboration, problem solving and a healthy level of competitiveness. In addition, by operating collaboratively, support functions such as HR, accountancy and legal can be centralised, reducing costs and allowing entrepreneurs to focus on their businesses.

The E-Commerce Ecosystem

A number of converging trends make it a great time to invest in the European e-commerce sector. As a result, European mobile commerce sales are expected to grow from €17.3bn to €113.3bn between 2013 and 2018 with the overall size of the European e-commerce market expected to increase by 70% to $248.3bn between 2013 and 2017.

The drivers of high growth levels in the sector are based upon three key trends.

• The proliferation of mobile handsets and tablets.

UK smartphone penetration has increased from 20% in 2010 to 60.4% in 2013 and is expected to reach 81% by 2017.

• Increased e-commerce user adoption.

The volume of online transactions, for example via PayPal, has increased from $92bn in 2010 to $228bn in 2014.

• The opportunities opened up by 4G mobile networks which enable faster, richer and more varied online experiences for mobile consumers.

On average, 4G in the UK offers speeds approximately 3.7x faster than 3G technology.

Investee Companies and Investment Sizes

The broad characteristics of the companies that the Fund seeks to invest in includes:

• Exposure to the mobile sector.

• Exposure to the e-commerce sector.

• Exposure to the Software as a Service (“SaaS”) sector.

• Online marketplaces.

The typical investment sizes are as follows:

Investment Restrictions

Before an Investment is made in any Investee Company, the Investee Company must do four things:

(1) Obtain HMRC EIS advance assurance;

(2) Receive approval from the investment committee which consists of the Investment Manager (the “Investment Committee”);

(3) Pass Seedrs’ extensive due diligence and documentation process; and

(4) Enter into the mentoring agreement with the Company Mentor.

Investment Decision Making Process

Outlined below is the Investment Manager’s four-stage approach used in identifying a potential Investee Company.

1. Identification: building on research carried out by the Fuel Ventures team, utilising their existing high profile and extensive network of alumni and contacts from previous investments, the Investment Manager will identify early-stage and potentially exclusive access to start-ups both in the UK and mainland Europe. All identified opportunities will be evaluated against investment criteria before moving to the discovery stage.

2. Discovery: The Fund seeks to invest in people as much as ideas. The informal and subjective discovery process provides the Investment Manager with the opportunity to understand not only the company founders but how the Company Mentor will be able to provide hands-on assistance to support the growth of the company.

3. Evaluation: Once passed the discovery stage the Investment Manager’s evaluation process tests the assumptions of company founders’ business plans (or, in the case of super-early stage start-ups, helps construct business plans). This is coupled with a rigorous due diligence process across all aspects of a potential investees business and its key employees.

4. Investment: Recommend investment ideas are presented to formal Investment Committee meetings which are held to review potential investments.

The anticipated average time from identification to investment in an Investee Company will be eight weeks.

About Fuel Studio Limited

Reflecting the Investment Manager’s hands on approach to supporting Investee Companies, and identifying and nurturing individual entrepreneurs, Fuel Studio Limited will operate as an EIS eligible business incubator.

Fuel Studio Limited will carry much of the administrative burden for early stage Investee Companies, allowing their management teams to focus on the development of their businesses, as well as creating operational cost synergies across the Fund of Investee Companies in a tax efficient manner.

Fuel Studio Limited will provide a variety of services to individual entrepreneurs, companies and Investee Companies including, technology commercialisation assistance; provision of accounting/financial management services; mentoring and assistance with business basics; provision of access to networking activities and various strategic partners, building on the networks of the Company and its senior management team; provision of advisory boards services; links to strategic partners; marketing assistance services; training and coaching on presentation skills; provision of management team identification services; assistance with regulatory compliance; intellectual property management; and access to office space and general office facilities, including access to high speed internet access.

Each company using Fuel Studio Limited will pay Fuel Studio Limited a fee for the provision of the services listed above.
The initial capital required for Fuel Studio Limited will be provided by the Fund, with not more than 10% of each Investor’s Subscription – and 10% of the aggregate amount subscribed to the Fund – being invested in Fuel Studio Limited. It is noted that as Fuel Studio Limited will provide services to the Investee Companies, the investment into this company by the Fund may be longer term.

Given its supportive role, there is not expected to be an exit from the investment made by the Fund in Fuel Studio Limited.

Fuel Studio Limited may, in due course, distribute profit in the form of a dividend to its shareholders.

Fuel Studio Limited is a company registered under the company number 9534939 on the 10 April 2015 with its registered office at 2 Stone Buildings, Lincoln’s Inn, London WC2A 3TH. The directors and equal shareholders of Fuel Studio Limited are Mark Pearson, Ian Brown and Paul Rous. It is also noted that Mark Pearson, Paul Rous and Ian Brown are also directors of the Company Mentor.

Exit Strategy

The expected holding period of most investments will be between the minimum three years for tax conditions and a maximum of four years. However, it is noted that Investee Companies may be held for longer periods. The life of the Fund is expected to be ten years. It is noted that following the realisation of the shares in each Investee Company, the realisation proceeds will be paid to the Investors. Consequently it is possible that Investors will receive distributions from the Fund over a period of time.

Fees

In order to maximise the Investors’ EIS Reliefs to the maximum extent possible, rather than fees being charged to Investors, each Investee Company will pay the Initial Costs and the Annual Charges (as detailed below) out of the money used by the Fund to subscribe for shares in that Investee Company. As a result, 100% of your investment in the Fund will be eligible for EIS relief (subject to each investor’s personal tax circumstances).

1. Initial Costs:

An initial fee is payable by each Investee Company to the Investment Manager and Seedrs equal to a total of 7% of the amounts Invested into each Investee Company.

2. Annual Charges:

An annual charge is payable to the Investment Manager by each Investee Company equal to a total of 2% of the amounts invested in the Investee Company (unless otherwise agreed).

The Investment Manager will, out of the Initial Costs and the Annual Charges payable by Investee Companies pay for the research and mentoring services undertaken by Fuel Ventures.

3. Performance Fee:

In order to align interests between Fuel Ventures Limited and Investors, no performance incentive is payable on any Investment until Investors receive cash proceeds equal to the total invested in the Investee Company. The performance fee will then be payable to Fuel Ventures Limited or related parties as follows:

o On any increase in value on an individual investment in an Investee Company up to £5 above a hurdle rate of £1.05 (for every £1 invested) a performance fee will be charged of 12.5% on the amount of the increase over and above £1.05 up to £5; and

o On any increase in value on an individual investment in an Investee Company over £5 (for every £1 invested) a performance fee will be charged of 17.5% on the amount of the increase over and above £5.

It is noted that no performance fee will be charged by Fuel Ventures Limited on any amounts below the hurdle rate of 5% (being £1.05 for every £1 invested).

This performance incentive may be payable as a fee by the Investment Manager on behalf of the Investors out of cash proceeds in the Fund on behalf of Investors, or by way of proceeds from equity in an Investee Company by Fuel Ventures Limited or related Parties. Different investments may require different structures but will be to similar economic effect.

Seedrs will charge their standard 7.5% fee on any profits made by investors on each investment in the Fund.

4. Other Costs:

Any reasonable arm’s length expenses and/or transaction fees incurred by the Investment Manager in managing the Fund and/or by the Company Mentor in assisting the Investment Manager or Investee Companies shall be reimbursed by Investee Companies.

Co-founding Fuel Ventures Limited with Mark is Paul Rous, a corporate financier and serial entrepreneur, and Ian Brown, a former investment banker and communications expert. Paul has over 10 years of experience in early stage investing and finance, with roles at Goldman Sachs, UBS, Generation Asset Management and a number of corporate finance boutiques. Ian has 10 years of investment banking and financial communications experience with roles at J.P. Morgan, British Land and CNC Communications.

Together, Mark, Paul and Ian have an extensive network of alumni from previous investments and will therefore be able to identify some of the UK’s and mainland Europe’s most promising start-up companies. Moreover, the Fuel Ventures team will leverage their skills, experience and established networks to provide high-quality mentoring services to the companies in which the Fund invests in (the “Investee Companies”) to help them grow and succeed.

Key highlights include:

• Lead by the award-winning entrepreneur Mark Pearson, Fuel Ventures Limited will act as the mentor to the Fuel Fund (the “Company Mentor”). The Company Mentor will provide mentoring services and other services to the Investee Companies under a management services agreement between the Company Mentor and the Investee Companies.

• The Fund will focus exclusively on the e-commerce ecosystem. This includes any consumer-facing business where there is a clear transaction/purchase and B2B companies that sell to e-commerce companies. The Fund will have an emphasis on innovative shopping models, innovative product companies, software and related services for e-commerce businesses.

• The European mobile and e-commerce sectors are forecast to more than double in growth over the next three years; the Fund will seek to capitalize on this by investing in the next generation of entrepreneurs who are driving this growth through innovation and execution.

• The Fund is seeking to raise £30 million for a ten year fund. Mark Pearson will be personally investing approximately 10% of the total amount invested by Investors into the Fund.

• Investments into Investee Companies will range from £50,000 to £1,000,000. All Investee Companies will have obtained EIS advance assurance from HMRC prior to investing.